##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


FORM 10-Q



| | (X) |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
| | --- |  | ---------------------------------------------------------------------------------------

For the period ended September 30, 2002

OR



| | (  ) |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
| | ---- |  | ----------------------------------------------------------------------------------------

For the transition period from _________to _________

Commission File Number 1-14227

AMERICAN BANK NOTE HOLOGRAPHICS, INC.

(Exact name of Registrant as specified in its charter)


|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of incorporation
or organization) |  | 13-3317668
(I.R.S. Employer
Identification No.)

399 Executive Boulevard
Elmsford, New York, 10523
(Address of principal executive offices, including zip code)

(914) 592-2355
(Registrants telephone number, including area code)

N/A
(Former name, former address, and former fiscal year, if changed from last report)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing for the past 90 days.

[X]   Yes    [  ]   No

The aggregate number of shares of common stock, $.01 par value, outstanding on
November 8, 2002 was 18,483,720.

1



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TABLE OF CONTENTS



|                          |                                                                                               |                                                   |  |  |  |  |  | 
|------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------- |  |  |  |  |  | 
|                          |                                                                                               | CONDENSED BALANCE SHEETS                         
|                          |                                                                                               | CONDENSED STATEMENTS OF OPERATIONS               
|                          |                                                                                               | CONDENSED STATEMENTS OF CASH FLOWS               
|                          |                                                                                               | NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
|                          | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                          | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                          | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II OTHER INFORMATION
|                          | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                          | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS                                
|                          | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURE                
|CERTIFICATION            
|CERTIFICATION            



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##### Table of Contents



AMERICAN BANK NOTE HOLOGRAPHICS, INC.

FORM 10-Q

INDEX

|                                                                                              |                                                                                                              |  |      |   | 
|--------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ |  | ---- | - | 
|                                                                                              |                                                                                                              |  | PAGE
|                                                                                              |                                                                                                              |  | NO. 
|PART I  FINANCIAL INFORMATION                                                                |                                                                                                              |  |      |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 1. Financial Statements                                                                  |                                                                                                              |  |      |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Condensed Balance Sheets as of
September 30, 2002 (Unaudited) and December 31, 2001                          |  |      | 3 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Unaudited Condensed Statements of Operations
For the Three and Nine Months Ended September 30, 2002 and 2001 |  |      | 4 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Unaudited Condensed Statements of Cash Flows
For the Nine Months Ended September 30, 2002 and 2001           |  |      | 5 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Notes to Unaudited Condensed Financial Statements                                                            |  |      | 6 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations |                                                                                                              |  | 10   |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 3. Quantitative and Qualitative Disclosures
About Market Risk                            |                                                                                                              |  | 13   |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 4. Controls and Procedures                                                               |                                                                                                              |  | 13   |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|PART II  OTHER INFORMATION                                                                   |                                                                                                              |  |      |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 1. Legal Proceedings                                                                     |                                                                                                              |  | 14   |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 4. Submission of Matters to a Vote of Securities Holders                                 |                                                                                                              |  | 14   |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                              |  | 14   |  

2



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##### Table of Contents






PART I  FINANCIAL
INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

AMERICAN BANK NOTE HOLOGRAPHICS, INC.
CONDENSED BALANCE SHEETS
(In thousands, except share data)

|                                                                                                                       |                                                                                                                |                            |        |               |        |              |        |        |        | 
|---------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------- | -------------------------- | ------ | ------------- | ------ | ------------ | ------ | ------ | ------ | 
|                                                                                                                       |                                                                                                                |                            |        | September 30, |        | December 31,
|                                                                                                                       |                                                                                                                |                            |        | 2002          |        | 2001        
|                                                                                                                       |                                                                                                                |                            |        |               |        |             
|                                                                                                                       |                                                                                                                |                            |        | (Unaudited)   |        |              |        |       
|ASSETS                                                                                                                 |                                                                                                                |                            |        |               |        |              |        |       
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Current Assets:                                                                                                        |                                                                                                                |                            |        |               |        |              |        |       
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Cash and cash equivalents                                                                                      |                            | $      | 8,537         |        |              | $      | 7,368  |       
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Accounts receivable, net of allowance for
doubtful accounts of $100 and $75                                    |                            |        | 3,236         |        |              |        | 3,050  |       
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Inventories, net of allowances of $1,368 and $725                                                              |                            |        | 2,242         |        |              |        | 3,267  |       
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Deferred income taxes                                                                                          |                            |        | 1,370         |        |              |        | 1,232  |       
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Other receivables                                                                                              |                            |        | 840           |        |              |        | 272    |       
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Prepaid expenses and other                                                                                     |                            |        | 467           |        |              |        | 702    |       
|                                                                                                                       |                                                                                                                |                            |        |               |        |              |        |       
|                                                                                                                       |                                                                                                                | Total current assets       |        |               | 16,692 |              |        |        | 15,891 | 
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Machinery, equipment and leasehold improvements,
net of accumulated depreciation and amortization
of $9,052 and $8,461 |                                                                                                                |                            | 4,827  |               |        |              | 5,112  |       
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Deferred income taxes                                                                                                  |                                                                                                                |                            |       |               |        |              | 143    |       
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Goodwill, net of accumulated amortization of $2,953                                                                    |                                                                                                                |                            | 7,408  |               |        |              | 7,408  |       
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Other assets                                                                                                           |                                                                                                                |                            | 335    |               |        |              | 32     |       
|                                                                                                                       |                                                                                                                |                            |        |               |        |              |        |       
|Total Assets                                                                                                           |                                                                                                                | $                          | 29,262 |               |        | $            | 28,586 |       
|                                                                                                                       |                                                                                                                |                            |        |               |        |              |        |       
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                   |                                                                                                                |                            |        |               |        |              |        |       
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Current Liabilities:                                                                                                   |                                                                                                                |                            |        |               |        |              |        |       
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Accounts payable                                                                                               |                            | $      | 1,100         |        |              | $      | 1,809  |       
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Accrued expenses                                                                                               |                            |        | 1,932         |        |              |        | 2,098  |       
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Customer advances                                                                                              |                            |        | 99            |        |              |        | 100    |       
|                                                                                                                       |                                                                                                                |                            |        |               |        |              |        |       
|                                                                                                                       |                                                                                                                | Total current liabilities  |        |               | 3,131  |              |        |        | 4,007  | 
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Deferred income taxes                                                                                                  |                                                                                                                |                            | 657    |               |        |              |       |       
|                                                                                                                       |                                                                                                                |                            |        |               |        |              |        |       
|                                                                                                                       |                                                                                                                | Total liabilities          |        |               | 3,788  |              |        |        | 4,007  | 
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Commitments and contingencies                                                                                          |                                                                                                                |                            |        |               |        |              |        |       
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|Stockholders Equity:                                                                                                  |                                                                                                                |                            |        |               |        |              |        |       
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Preferred stock, authorized 5,000,000 shares;
no shares issued or outstanding                                  |                            |        |              |        |              |        |       |       
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Common stock, par value $.01 per share, authorized
40,000,000 shares; issued and outstanding 18,483,720 shares |                            |        | 185           |        |              |        | 185    |       
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Additional paid-in-capital                                                                                     |                            |        | 23,994        |        |              |        | 23,994 |       
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                      
|                                                                                                                       | Retained earnings                                                                                              |                            |        | 1,295         |        |              |        | 400    |       
|                                                                                                                       |                                                                                                                |                            |        |               |        |              |        |       
|                                                                                                                       |                                                                                                                | Total Stockholders Equity |        |               | 25,474 |              |        |        | 24,579 | 
|                                                                                                                       |                                                                                                                |                            |        |               |        |              |        |       
|Total Liabilities and Stockholders Equity                                                                             |                                                                                                                | $                          | 29,262 |               |        | $            | 28,586 |       
|                                                                                                                       |                                                                                                                |                            |        |               |        |              |        |       

See Notes to Unaudited Condensed Financial Statements.

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AMERICAN BANK NOTE HOLOGRAPHICS, INC.
CONDENSED STATEMENTS OF OPERATIONS  UNAUDITED
(In thousands, except per share data)

|                                         |                               |   |                    |       |                   |   |       |       |      |   |        |        |  |   |        |        | 
|---------------------------------------- | ----------------------------- | - | ------------------ | ----- | ----------------- | - | ----- | ----- | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                         |                               |   | Three Months Ended |       | Nine Months Ended
|                                         |                               |   | September 30,      |       | September 30,    
|                                         |                               |   |                    |       |                  
|                                         |                               |   | 2002               |       | 2001              |   | 2002  |       | 2001
|                                         |                               |   |                    |       |                   |   |       |       |     
|Revenue:                                 |                               |   |                    |       |                   |   |       |       |      |   |        |        |  |   |        |       
|                                        
|                                        
|                                        
|                                        
|                                         | Sales                         |   | $                  | 4,712 |                   |   | $     | 5,137 |      |   | $      | 14,168 |  |   | $      | 15,177 | 
|                                        
|                                        
|                                        
|                                        
|                                         | Royalty income                |   |                    | 133   |                   |   |       | 106   |      |   |        | 463    |  |   |        | 316    | 
|                                         |                               |   |                    |       |                   |   |       |       |      |   |        |        |  |   |        |       
|                                         |                               |   | 4,845              |       |                   |   | 5,243 |       |      |   | 14,631 |        |  |   | 15,493 |       
|                                        
|                                        
|                                        
|                                        
|Costs and expenses:                      |                               |   |                    |       |                   |   |       |       |      |   |        |        |  |   |        |       
|                                        
|                                        
|                                        
|                                        
|                                         | Cost of goods sold            |   |                    | 2,032 |                   |   |       | 2,457 |      |   |        | 6,852  |  |   |        | 7,299  | 
|                                        
|                                        
|                                        
|                                        
|                                         | Selling and administrative    |   |                    | 1,759 |                   |   |       | 2,029 |      |   |        | 5,417  |  |   |        | 5,622  | 
|                                        
|                                        
|                                        
|                                        
|                                         | Research and development      |   |                    | 243   |                   |   |       | 372   |      |   |        | 856    |  |   |        | 946    | 
|                                        
|                                        
|                                        
|                                        
|                                         | Depreciation and amortization |   |                    | 203   |                   |   |       | 271   |      |   |        | 595    |  |   |        | 795    | 
|                                         |                               |   |                    |       |                   |   |       |       |      |   |        |        |  |   |        |       
|                                         |                               |   | 4,237              |       |                   |   | 5,129 |       |      |   | 13,720 |        |  |   | 14,662 |       
|                                         |                               |   |                    |       |                   |   |       |       |      |   |        |        |  |   |        |       
|Operating income                         |                               |   | 608                |       |                   |   | 114   |       |      |   | 911    |        |  |   | 831    |       
|                                        
|                                        
|                                        
|                                        
|Other income:                            |                               |   |                    |       |                   |   |       |       |      |   |        |        |  |   |        |       
|                                        
|                                        
|                                        
|                                        
|                                         | Interest income               |   |                    | 29    |                   |   |       | 57    |      |   |        | 76     |  |   |        | 223    | 
|                                        
|                                        
|                                        
|                                        
|                                         | Patent settlement             |   |                    | 570   |                   |   |       |      |      |   |        | 570    |  |   |        |       | 
|                                         |                               |   |                    |       |                   |   |       |       |      |   |        |        |  |   |        |       
|                                         |                               |   | 599                |       |                   |   | 57    |       |      |   | 646    |        |  |   | 223    |       
|                                         |                               |   |                    |       |                   |   |       |       |      |   |        |        |  |   |        |       
|Income before provision for income taxes |                               |   | 1,207              |       |                   |   | 171   |       |      |   | 1,557  |        |  |   | 1,054  |       
|                                        
|                                        
|                                        
|                                        
|Provision for income taxes               |                               |   | 513                |       |                   |   | 68    |       |      |   | 662    |        |  |   | 422    |       
|                                         |                               |   |                    |       |                   |   |       |       |      |   |        |        |  |   |        |       
|Net income                               |                               | $ | 694                |       |                   | $ | 103   |       |      | $ | 895    |        |  | $ | 632    |       
|                                         |                               |   |                    |       |                   |   |       |       |      |   |        |        |  |   |        |       
|Net income per share:                    |                               |   |                    |       |                   |   |       |       |      |   |        |        |  |   |        |       
|                                        
|                                        
|                                        
|                                        
|                                         | Basic and diluted             |   | $                  | 0.04  |                   |   | $     | 0.01  |      |   | $      | 0.05   |  |   | $      | 0.03   | 
|                                         |                               |   |                    |       |                   |   |       |       |      |   |        |        |  |   |        |       

See Notes to Unaudited Condensed Financial Statements.

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AMERICAN BANK NOTE HOLOGRAPHICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS  UNAUDITED
(In thousands)

|                                                    |                                                                                             |                                              |                                       |      |                   |       |        |      |   |        |  
|--------------------------------------------------- | ------------------------------------------------------------------------------------------- | -------------------------------------------- | ------------------------------------- | ---- | ----------------- | ----- | ------ | ---- | - | ------ | -
|                                                    |                                                                                             |                                              |                                       |      | Nine Months Ended
|                                                    |                                                                                             |                                              |                                       |      | September 30,    
|                                                    |                                                                                             |                                              |                                       |      |                  
|                                                    |                                                                                             |                                              |                                       |      | 2002              |       | 2001  
|                                                    |                                                                                             |                                              |                                       |      |                   |       |       
|Cash flows from operating activities:               |                                                                                             |                                              |                                       |      |                   |       |        |     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Net income                                                                                  |                                              | $                                     | 895  |                   |       | $      | 632  |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Adjustments to reconcile net income to net cash provided by (used in)
operating activities: |                                              |                                       |      |                   |       |        |      |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                             |                                              | Depreciation and amortization         |      |                   | 595   |        |      |   | 795    |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                             |                                              | Deferred income taxes                 |      |                   | 662   |        |      |   | 422    |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                             |                                              | Provision for doubtful accounts       |      |                   | 25    |        |      |   | 25     |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                             | Changes in operating assets and liabilities: |                                       |      |                   |       |        |      |   |       
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                             |                                              | Accounts receivable                   |      |                   | (211  | )      |      |   | (1,101 | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                             |                                              | Inventories                           |      |                   | 1,025 |        |      |   | (318   | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                             |                                              | Other receivables                     |      |                   | (568  | )      |      |   | 222    |  
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                             |                                              | Prepaid expenses and other            |      |                   | (72   | )      |      |   | (395   | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                             |                                              | Accounts payable and accrued expenses |      |                   | (875  | )      |      |   | (909   | )
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    |                                                                                             |                                              | Customer advances                     |      |                   | (1    | )      |      |   | (79    | )
|                                                    |                                                                                             |                                              |                                       |      |                   |       |        |     
|Net cash provided by (used in) operating activities |                                                                                             |                                              | 1,475                                 |      |                   |       | (706   | )   
|                                                    |                                                                                             |                                              |                                       |      |                   |       |        |     
|Cash flows from investing activities:               |                                                                                             |                                              |                                       |      |                   |       |        |     
|                                                   
|                                                   
|                                                   
|                                                   
|                                                    | Capital expenditures                                                                        |                                              |                                       | (306 | )                 |       |        | (352 | )
|                                                    |                                                                                             |                                              |                                       |      |                   |       |        |     
|Net cash used in investing activities               |                                                                                             |                                              | (306                                  | )    |                   |       | (352   | )   
|                                                    |                                                                                             |                                              |                                       |      |                   |       |        |     
|Increase (decrease) in cash and cash equivalents    |                                                                                             |                                              | 1,169                                 |      |                   |       | (1,058 | )   
|                                                   
|                                                   
|                                                   
|                                                   
|Cash and cash equivalents, beginning of period      |                                                                                             |                                              | 7,368                                 |      |                   |       | 7,926  |     
|                                                    |                                                                                             |                                              |                                       |      |                   |       |        |     
|Cash and cash equivalents, end of period            |                                                                                             | $                                            | 8,537                                 |      |                   | $     | 6,868  |     
|                                                    |                                                                                             |                                              |                                       |      |                   |       |        |     

See Notes to Unaudited Condensed Financial Statements.

5



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##### Table of Contents






AMERICAN BANK NOTE HOLOGRAPHICS, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

NOTE A  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

American Bank Note Holographics, Inc. (the Company or ABNH) originates,
mass-produces, and markets secure holograms. Holograms are used for security,
packaging and promotional applications. The Company operates in one reportable
industry segment.

The accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three and
nine months ended September 30, 2002 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2002.

The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in
the United States for complete
financial statements.

For further information, refer to the consolidated financial statements and
footnotes thereto included in the Companys annual report on Form 10-K for the
year ended December 31, 2001.

REVENUE RECOGNITION

The Company recognizes revenue in accordance with the provisions of the
Securities and Exchange Commissions (SEC) Staff Accounting Bulletin (SAB)
No. 101, Revenue Recognition. Specifically, sales and the related cost of
goods sold are generally recognized at the latter of the time of shipment or
when title passes to customers. In some situations, the Company has shipped
product where the sale is contingent upon the customers use of the product. In
these situations, the Company does not recognize sales upon product shipment,
but rather when the buyer of the product informs the Company that the product
has been used. Additionally, pursuant to terms with a certain customer,
completed items are stored on behalf of the customer at the Companys on-site
secured facility and, in that instance, sales are recognized when all of the
following have occurred: the customer has ordered the goods, the manufacturing
process is complete, the goods have been transferred to the on-site secured
facility and are ready for shipment, the risk of ownership has passed to the
customer and the customer has been billed for the order.

Customer advances represent payments received from customers for products which
have not yet been shipped. These customer advances are classified as current
liabilities on the accompanying balance sheets.

Shipping and handling amounts billed to customers are included in sales and
amounted to $0.1 million and $0.3 million for the three and nine months ended
September 30, 2002, respectively, and $0.1 million and $0.3 million for the
three and nine months ended September 30, 2001, respectively. Shipping and
handling costs are included in selling and administrative expenses.

BASIC AND DILUTED NET INCOME PER SHARE

Basic net income per share is computed based on the weighted average number of
outstanding shares of common stock. The basic weighted average number of shares
outstanding was 18,483,720 in each of the three and nine months ended September
30, 2002 and 2001, respectively. Diluted net income per share is computed by
dividing net income by the weighted average number of shares of common stock
outstanding and dilutive potential shares of common stock. For the three and
nine months ended September 30, 2002, the diluted number of weighted average
shares outstanding was the same as the basic number of weighted average shares
outstanding because the exercise price of the outstanding stock options and
warrants was greater than the average market value of the underlying common
stock for the period, making them antidilutive. For the three months ended
September 30, 2001 the diluted number of weighted average shares outstanding
was 18,544,708. For the nine months ended September 30, 2001,

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the diluted number of weighted average shares outstanding was the same as the
basic weighted average number of shares outstanding because the exercise price
of the outstanding stock options and warrants was greater than the average
market value of the underlying common stock for the period, making them
antidilutive.

BUSINESS INFORMATION

Sales to MasterCard were approximately 39% and 35% of sales for the nine months
ended September 30, 2002 and 2001, respectively. The Company provides
holograms to MasterCard pursuant to an agreement, as amended, which expires in
February 2003, subject to automatic renewal if not terminated by either party
within six months of the termination date. As of September 30, 2002 neither
party has given such termination notice to the other. The Company is currently
negotiating a new agreement with MasterCard. The loss of all or a substantial
portion of the sales to MasterCard, however, would have a material adverse
effect on the financial position, results of operations and cash flows of the
Company. At September 30, 2002 and December 31, 2001 accounts receivable from
this customer totaled $1.3 million and $1.0 million, respectively.

Sales to manufacturers of VISA credit cards were approximately 24% and 22% of
sales for the nine months ended September 30, 2002 and 2001, respectively. The
loss of a substantial portion of the sales to these customers would have a
material adverse effect on the financial position, results of operations and
cash flows of the Company. Accounts receivable from these customers
approximated $1.0 million and $1.0 million at September 30, 2002 and December
31, 2001, respectively.

The Company purchases certain key materials used in the manufacture of its
holograms and outsources certain key processes from third party suppliers, some
of which are sole source relationships, with whom the Company does not have
supply contracts. Any problems that occur with respect to the delivery, quality
or cost of any such materials or processes could have a material adverse effect
on the financial position, results of operations and cash flows of the Company.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 141, Business
Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS
No. 141 requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method and defines criteria for recognition of
acquired intangible assets. Under SFAS No. 142, goodwill and intangible assets
with indefinite lives are no longer amortized but are reviewed annually (or
more frequently if impairment indicators arise) for impairment. Separable
intangible assets that are not deemed to have indefinite lives will continue to
be amortized over their useful lives (but with no maximum life). Effective
January 1, 2002, the Company adopted SFAS No. 142 and completed its required
transitional fair value impairment test on its goodwill, which valuation did
not have a material effect on the Companys financial statements. As a result
of the adoption of SFAS No. 142, the amortization of goodwill ceased as of
January 1, 2002. Had goodwill amortization been recorded in 2002, goodwill
amortization expense of $258,000 would have been included in the accompanying
unaudited statement of operations for the nine months ended September 30, 2002.

The 2001 historical financial statements do not reflect the provisions of SFAS
142. Had the Company adopted SFAS 142 on January 1, 2001, net income and basic
and diluted net income per share for the three and nine months ended September
30, 2001, would have been as follows (in thousands):

|                                                |  |                    |      |                    |  |   |      | 
|----------------------------------------------- |  | ------------------ | ---- | ------------------ |  | - | ---- | 
|                                                |  | Three Months Ended |      | Nine Months Ended 
|                                                |  | September 30, 2001 |      | September 30, 2001
|                                                |  |                    |      |                   
|Net income as reported                          |  | $                  | 103  |                    |  | $ | 632  | 
|                                               
|                                               
|                                               
|                                               
|Add: Goodwill amortization                      |  |                    | 86   |                    |  |   | 258  | 
|                                                |  |                    |      |                    |  |   |      | 
|Adjusted net income                             |  | $                  | 189  |                    |  | $ | 890  | 
|                                                |  |                    |      |                    |  |   |      | 
|Proforma basic and diluted net
income per share |  | $                  | 0.01 |                    |  | $ | 0.05 | 
|                                                |  |                    |      |                    |  |   |      | 

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In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations, which requires obligations associated with the retirement of
long-lived assets to be recorded as increases in costs of the related asset.
Also, on October 3, 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 supercedes SFAS No.
121, Accounting for the Impairment or Disposal of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. SFAS No. 144 develops one accounting
model for determining impairment based on the model in SFAS No. 121, and for
long-lived assets that are to be disposed of by sale, requires them to be
recorded at the lower of book value or fair value less cost to sell. SFAS No.
144 expands the scope of discontinued operations. The implementation of these
statements did not have a material impact on the Companys financial
statements.

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to current year
presentation.

NOTE B  INVENTORIES

Inventories consist of the following (in thousands):

|                                             |  |               |        |              |  |   |       |  
|-------------------------------------------- |  | ------------- | ------ | ------------ |  | - | ----- | -
|                                             |  | September 30, |        | December 31,
|                                             |  | 2002          |        | 2001        
|                                             |  |               |        |             
|                                             |  | (Unaudited)   |        |              |  |  
|Finished goods                               |  | $             | 1,576  |              |  | $ | 1,822 |  
|                                            
|                                            
|                                            
|                                            
|Finished goods on consignment with customers |  |               | 478    |              |  |   | 287   |  
|                                            
|                                            
|                                            
|                                            
|Work in process                              |  |               | 955    |              |  |   | 1,047 |  
|                                            
|                                            
|                                            
|                                            
|Raw materials                                |  |               | 601    |              |  |   | 836   |  
|                                             |  |               |        |              |  |   |       |  
|                                             |  |               | 3,610  |              |  |   | 3,992 |  
|                                            
|                                            
|                                            
|                                            
|Less: Reserve for obsolescence               |  |               | (1,368 | )            |  |   | (725  | )
|                                             |  |               |        |              |  |   |       |  
|                                             |  | $             | 2,242  |              |  | $ | 3,267 |  
|                                             |  |               |        |              |  |   |       |  

NOTE C  SETTLEMENT AGREEMENT

ABNH and Leonhard Kurz GmbH & Co. KG (Kurz) have entered into a Settlement
Agreement, a Patent License Agreement and a Substitute Cross License Agreement
each dated as of July 1, 2002.

Under the Settlement Agreement, ABNH has granted Kurz and its customers in
connection with the use of Kurz products an irrevocable release from any past,
present and future infringements of ABNHs demetallization and hot stamping
patents except for a future use in a specific interpretation of the
demetallization patents that would be covered by the separate Patent License
Agreement. Kurz has granted ABNH an irrevocable release from any past, present
and future infringements of Kurzs Meisel patents covering principles of
embossing of surface reliefs in general. In connection with the Settlement
Agreement, Kurz will make payments to ABNH totaling $900,000 over two years,
with $300,000 paid upon settlement and the remainder payable in eight quarterly
installments of $75,000 beginning in October 2002. ABNH recorded such amounts
as other income on the accompanying unaudited condensed statement of operations
in the third quarter of 2002, net of legal expenses of $280,000 and imputed
interest of $50,000.

The Patent License Agreement provides for ABNH to grant Kurz and its customers
in connection with the use of Kurz products an irrevocable, non-exclusive,
world-wide right to produce, have produced, use, market and sell any products
that fall under the definitions set forth in the Patent License Agreement and
are covered by ABNHs demetallization patents. Kurz will pay ABNH a 3.5%
royalty on the net selling price of all products covered by the Patent License
Agreement following the date of the Patent License Agreement.

The Substitute Cross License Agreement (CLA) replaces the agreement that ABNH
and Kurz entered into in February 1992 that covered holographic magnetic
stripes, or HoloMag . Both ABNH and Kurz own patents that cover holographic
magnetic stripes, and they have cross-licensed them to each other under the
CLA. Under the CLA, ABNH has the exclusive right to sell HoloMag  for card
products to United States based card authorizing organizations regardless of
where such card authorizing organizations assemble or distribute cards. ABNH
has the

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right to procure certain or all of the materials to produce HoloMag  from Kurz
or from any third party, and will pay Kurz royalties ranging from 0 to 12%
depending on which, if any, components Kurz supplies to ABNH. Kurz retains the
right along with ABNH to make, use and sell HoloMag  for applications other
than cards.

NOTE D  COMMITMENTS AND CONTINGENCIES

SEC INVESTIGATION

On February 9, 1999, the Division of Enforcement of the SEC issued a Formal
Order Directing Private Investigation in connection with matters giving rise to
the need to restate the Companys previously issued financial statements for
the years ended December 31, 1997 and 1996 and the first three quarters of 1998
that were filed by former management. The SEC has concluded its investigation
of the Company and has accepted the Companys offer of settlement. On March 16,
2001, the Commissioners of the SEC approved an order making findings and
imposing a cease and desist order on any future violations of Section 17(a) of
the Securities Act, Sections 10(b), 13(a), 13(b)(2)(A) and (B), and 30A of the
Exchange Act, and Exchange Act Rules 10b-5, 12b-20, and 13a-13. Without
admitting or denying any liability, the Company paid a $75,000 fine to the SEC
because certain former senior officers of the Company allegedly violated
provisions of the Foreign Corrupt Practices Act. The Company recorded the fine
as a charge to its statement of operations in the fourth quarter of 2000. The
order was approved and filed by the Secretary of the SEC on July 18, 2001.

OTHER

A consolidated class action complaint against ABNH, certain of its former
officers and directors, its former parent company, American Banknote
Corporation (ABN or the Former Parent), the four co-lead underwriters of
ABNHs Initial Public Offering (the Offering) and its previous auditors, was
filed in the United States District Court for the Southern District of New York
(the Court). The complaint alleges violations of the federal securities laws
and seeks to recover damages on behalf of all purchasers of ABNHs common stock
during the class period (July 15, 1998 through February 1, 1999). In October
2000, ABNH, all other defendants and the plaintiffs entered into a definitive
agreement to settle all of the claims that were the subject of the class
action, as well as claims asserted against the Former Parent and other
defendants in a separate class action. The settlement agreement received the
final approval of the Court on December 15, 2000. Under the settlement, the
insurance carrier for ABNH and the Former Parent paid $12,500,000, the previous
auditors paid $2,350,000 and ABNH issued and distributed 1,460,000 shares of
its common stock as well as warrants to purchase 863,647 shares of ABNHs
common stock at an exercise price of $6.00 per share. The shares, all of which
have been distributed, have been included in shares outstanding in the
accompanying financial statements. The warrants, all of which have been issued,
are exercisable through June 18, 2003.

On December 8, 1999, the Former Parent filed a petition and plan of
reorganization under Chapter 11 of the Federal Bankruptcy Code. In connection
with negotiations on the Chapter 11 plan, the Company reached an agreement with
the Former Parent which was subject to consummation of the Chapter 11 plan and
also provided that (i) the parties exchange mutual, general releases for any
obligations each may have to the other pursuant to the separation agreement
between ABNH and the Former Parent dated July 20, 1998, and all sums allegedly
owing by each of ABNH and the Former Parent, and its affiliates, to each other,
(ii) the Company receive 25,000 shares of stock of the reorganized Former
Parent, (iii) the Former Parent be responsible for and shall pay all asserted
and unasserted income, franchise or similar tax liabilities of the Company for
the period January 1, 1990 through July 20, 1998 and indemnify the Company with
respect to any such liabilities and (iv) the Company withdraw its claim against
the Former Parent in the Chapter 11 case and not object to the Former Parents
Chapter 11 plan as long as it comports with the terms of the agreement between
the Company and the Former Parent. The above described settlement between the
Company and the Former Parent was made as part of the Chapter 11 plan which the
bankruptcy court confirmed on November 3, 2000. As a result of the above
agreement the Company included in its statement of operations in 2000,
approximately $0.5 million relating to the reversal of accounts payable and
accrued expenses due to the Former Parent and affiliates.

The Former Parent was unable to consummate the plan as originally confirmed by
the Bankruptcy Court. Consequently, the Former Parent filed an amended plan,
dated July 17, 2002 (the Amended Plan). The Amended

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Plan did not change the treatment afforded to the Company nor did it alter any
of the terms of the agreement described above. The Bankruptcy Court entered an
order on August 22, 2002 confirming the Amended Plan, which became effective as
of October 1, 2002. The Company and the Former Parent entered into a
definitive agreement dated September 17, 2002 evidencing the settlement
referenced above.

The Company currently and from time to time is involved in litigation (as both
plaintiff and defendant) incidental to the conduct of its business; however,
other than as described above, the Company is not a party to any lawsuit or
proceeding which, in the opinion of management of the Company, could have a
material impact on the Companys financial position, results of operations or
cash flows.




ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
Companys unaudited financial statements, including the notes thereto,
appearing elsewhere in this report.

OVERVIEW

The Company originates, mass-produces and markets holograms. The Companys
holograms are used primarily for security applications such as counterfeiting
protection for credit and other transaction cards, identification cards and
documents of value, as well as for tamper resistance and authentication of
high-value consumer and industrial products. The Company also produces
non-secure holograms for packaging and promotional applications. The
Company's sales of
holograms for security applications generally carry higher gross margins than
sales for non-security applications.

Concerns regarding counterfeiting, piracy and other infractions that can result
in lost sales, lost goodwill and product liability claims drive the use of
product authentication holograms. Companies in various industries have utilized
holograms as authentication devices to reduce potential losses. Also, concerns
over counterfeiting and copying have led to an increased use of holograms on
documents of value, including currency, passports, business cheques, gift
certificates, vouchers, certificates of deposit, stamps (postage and revenue),
tickets and other financial instruments.

A significant portion of the Companys business is derived from orders placed
by certain credit card companies, including MasterCard and manufacturers of
VISA brand credit cards, and variations in the timing of such orders can cause
significant fluctuations in the Companys sales. Sales to MasterCard were
approximately 39% and 35% of sales for the nine months ended September 30, 2002
and 2001, respectively. The Company provides holograms to MasterCard pursuant
to an agreement, as amended, which expires in February 2003, subject to
automatic renewal if not terminated by either party within six months of the
termination date. As of September 30, 2002, neither party has given such
termination notice to the other. The Company is currently negotiating a new
agreement with MasterCard. Sales to manufacturers of VISA credit cards were
approximately 24% and 22% of sales for the nine months ended September 30, 2002
and 2001, respectively. The Company does not have long-term purchase contracts
with VISA and supplies holograms to approximately 50 VISA authorized card
manufacturers pursuant to purchase orders. Currently the Company is one of two
companies authorized to manufacture and sell VISA brand holograms to
manufacturers of VISA brand credit cards. If either MasterCard or VISA were to
terminate its respective relationship with the Company or substantially reduce
their orders, there would be a material adverse effect on the Companys
business, financial condition, results of operations and cash flows.

Holograms are sold under purchase orders and contracts with customers. Sales
and the related cost of goods sold are generally recognized at the latter of
the time of shipment or when title passes to customers. In some situations, the
Company has shipped product where the sale is contingent upon the customers
use of the product. In these situations, the Company does not recognize sales
upon product shipment, but rather when the buyer of the product informs the
Company that the product has been used. Additionally, pursuant to terms with a
certain customer, completed items are stored on behalf of the customer at the
Companys on-site secured facility and, in that instance, sales are recognized
when all of the following have occurred: the customer has ordered the goods,
the manufacturing process is complete, the goods have been transferred to the
on-site secured facility and are ready for shipment, the risk of ownership has
passed to the customer and the customer has been billed for the order. At
September 30, 2002 and December 31, 2001, accounts receivable from this
customer totaled $1.3 million and $1.0 million, respectively.

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The Company purchases certain key materials used in the manufacture of its
holograms and outsources certain key processes from third party suppliers, some
of whom are sole source relationships, with which it does not have supply
contracts. Any problems that occur with respect to the delivery, quality or
cost of any such materials or processes could have a material adverse effect on
the Companys financial position, results of operations and cash flows.

Sales may fluctuate from quarter to quarter due to changes in customers
ordering patterns. Customers do not typically provide the Company with precise
forecasts of future order quantities. Quarterly demand for holograms may be
materially influenced by customers promotions, inventory replenishment, card
expiration patterns, delivery schedules and other factors which may be
difficult for the Company to anticipate.

Cost of goods sold includes raw materials such as nickel, foils, films and
adhesives; labor costs; manufacturing overhead; and hologram origination costs
(which represent costs of a unique master hologram that is made to customer
specifications and is an integral part of the production process). As a result,
costs of goods sold are affected by product mix, manufacturing yields, costs of
hologram originations and changes in the cost of raw materials and labor.

Selling and administrative expenses primarily consist of salaries, benefits and
commissions for the Companys corporate, sales, marketing and administrative
personnel, marketing and promotion expenses, legal and accounting expenses,
shipping and handling expenses and expenses associated with being a public
company.

COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2002 TO THREE MONTHS ENDED
SEPTEMBER 30, 2001

Sales. Sales decreased by $0.4 million, or 8.3%, from $5.1 million for the
three months ended September 30, 2001 to $4.7 million for the three months
ended September 30, 2002. The decrease was primarily due to a decrease in
sales of non-credit card security holograms of $0.7 million offset by an
increase of $0.3 million for sales of holograms for credit cards.

Royalty Income. Royalty income increased by $27,000 from $106,000 for the
three months ended September 30, 2001 to $133,000 for the three months ended
September 30, 2002 as a result of higher sales reported by a licensee.

Cost of Goods Sold. Cost of goods sold decreased by $0.4 million from $2.4
million for the three months ended September 30, 2001 to $2.0 million for the
three months ended September 30, 2002. As a percentage of sales, cost of goods
sold decreased from 47.8% in the three months ended September 30, 2001 to 43.1%
for the same period in 2002. The decrease is primarily due to a decrease in
production costs of 3.9 % caused by a decrease in factory personnel and
overhead expenses and a decrease of 8.8% related to a vendor reimbursement
offset by an increase in warranty expense of 1.3%, an increase in obsolescence
expense of 4.6% and an increase in royalty expense of 2.1%.

Selling and Administrative. Selling and administrative expenses decreased by
$0.3 million, from $2.0 million in the three months ended September 30, 2001 to
$1.7 million for the three months ended September 30, 2002. The decrease was
primarily due to a decrease in sales salaries, commissions and employee
benefits of $0.2 million and a decrease in professional and other
administrative expenses of $0.1 million.

Depreciation and Amortization. Depreciation and amortization decreased by
$68,000 from $271,000 for the three months ended September 30, 2001 to $203,000
for the three months ended September 30, 2002. The decrease was primarily due
to the cessation of goodwill amortization of $86,000 offset by an increase in
depreciation of fixed assets of $18,000.

Interest Income. Interest income decreased by $28,000, from $57,000 for the
three months ended September 30, 2001 to $29,000 for the three months ended
September 30, 2002 primarily as a result of lower interest rates in effect
during the current period.

Patent Settlement. The Company recognized $570,000 of income related to a
patent settlement agreement, which it entered into on July 1, 2002. Under the
agreement the Company will receive $900,000 over two years, with $300,000 paid
upon settlement and the remainder payable in eight quarterly installments of
$75,000 beginning in

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October 2002. The Company recorded such amount, net of legal expenses of
$280,000 and imputed interest of $50,000.

COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2002 TO NINE MONTHS ENDED
SEPTEMBER 30, 2001

Sales. Sales decreased by $1.0 million, or 6.6%, from $15.2 million for the
nine months ended September 30, 2001 to $14.2 million for the nine months ended
September 30, 2002. The decrease in sales was due to decreases in sales of
security holograms for credit cards and sales of non credit card security
holograms of $0.2 million and $0.8 million, respectively.

Royalty Income. Royalty income increased from $0.3 million for the nine months
ended September 30, 2001 to $0.5 million for the nine months ended September
30, 2002 as a result of higher sales reported by a licensee.

Cost of Goods Sold. Cost of goods sold decreased by $0.4 million, from $7.3
million for the nine months ended September 30, 2001 to $6.9 million for the
nine months ended September 30, 2002. As a percentage of sales, cost of goods
sold increased from 48.1% in the nine months ended September 30, 2001 to 48.4%
for the same period in 2002. The increase is primarily due to an increase in
warranty expense of 1.1%, an increase in obsolescence expense of 2.3% and an
increase in royalty expense of 1.4% offset by a decrease in production costs of
1.6% and a decrease of 2.9% related to a vendor reimbursement.

Selling and Administrative. Selling and administrative decreased by $0.2
million from $5.6 million for the nine months ended September 30, 2001 to $5.4
million for the comparable period in 2002. The decrease was primarily due to
decreases in selling salaries and benefits of $0.1 million and decreases in
other selling expenses, primarily travel and show expenses, of $0.1 million.

Depreciation and Amortization. Depreciation and amortization decreased by $0.2
million from $0.8 million for the nine months ended September 30, 2001 to $0.6
million for the nine months ended September 30, 2002. The decrease was
primarily due to the cessation of goodwill amortization of $0.3 million offset
by an increase in depreciation of fixed assets of $0.1 million.

Interest Income. Interest income decreased by $147,000, from $223,000 for the
nine months ended September 30, 2001 to $76,000 for the nine months ended
September 30, 2002 primarily as a result of lower interest rates in effect
during the current period.

Patent Settlement. The Company recognized $570,000 of income related to a
patent settlement agreement, which it entered into on July 1, 2002. Under the
agreement the Company will receive $900,000 over two years, with $300,000 paid
upon settlement and the remainder payable in eight quarterly installments of
$75,000 beginning in October 2002. The Company recorded such amount, net of
legal expenses of $280,000 and imputed interest of $50,000.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2002, the Company had $8.5 million in cash and cash
equivalents and working capital of $13.6 million.

On July 1, 2002, the Company entered into agreements with Kurz (See Note C to
Notes to Unaudited Condensed Financial Statements), under which Kurz will make
payments to ABNH totaling $900,000 over two years, with $300,000 paid upon
settlement and the remainder payable in eight quarterly installments of $75,000
beginning in October 2002. The unpaid amounts are included in other
receivables and other assets on the accompanying unaudited condensed balance
sheet at September 30, 2002.

During the third quarter 2002, the Company negotiated a vendor reimbursement
and is scheduled to receive $415,000 in the fourth quarter of 2002. This
amount has been recorded in other receivables on the accompanying unaudited
condensed balance sheet at September 30, 2002.

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The Companys operating activities provided cash of $1.5 million for the nine
months ended September 30, 2002, compared to having used cash of $0.7 million
for the nine months ended September 30, 2001. Cash flows provided by net
income and non-cash adjustments increased $0.3 million in the nine months ended
September 30, 2002 from the comparable period in 2001. Cash flows resulting
from changes in operating assets and liabilities increased by $1.9 million in
the nine months ended September 30, 2002 from the nine months ended September
30, 2001 primarily due to increases in cash provided by inventories and prepaid
expenses.

Investing activities for the nine months ended September 30, 2002 and 2001 used
cash of $306,000 and $352,000, respectively, for capital expenditures.

There were no financing activities for the nine month periods ended September
30, 2002 and 2001.

The Company has long-term operating leases for offices, manufacturing
facilities and equipment, which expire through 2007. The Company has renewal
options on some locations, which provide for renewal rents based upon increases
tied to the consumer price index.

At September 30, 2002, future minimum lease payment for the twelve month
periods ending September 30, 2003 through September 30, 2008 under
noncancelable operating leases are as follows: $1.0 million in 2003; $0.9
million in 2004; $0.9 million in 2005; $0.9 million in 2006; $0.9 million in
2007; and $0.2 million in 2008.

SPECIAL NOTE REGARDING FORWARD  LOOKING STATEMENTS

Certain statements in this Form 10-Q constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
Reform Act). Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company, or industry results, to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors are
more fully described under the caption Business  Risk Factors in the
Companys Annual Report on Form 10-K for the year ended December 31, 2001,
which should be considered in connection with a review of this report.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company does not engage in significant activity with respect to market risk
sensitive instruments. Accordingly, our risk with respect to market risk
sensitive instruments is immaterial.




ITEM 4. CONTROLS AND PROCEDURES

Within the ninety days prior to the date of this quarterly report the Companys
Chief Executive Officer and Chief Financial Officer have conducted an
evaluation of the effectiveness of disclosure controls and procedures pursuant
to Rule 13a-14 of the Securities Exchange Act of 1934. Based on that
evaluation the Chief Executive Officer and Chief Financial Officer concluded
that the disclosure controls and procedures are effective in ensuring that all
material information to be filed in this quarterly report has been made known
to them in a timely manner. There have been no significant changes in internal
controls or in other factors that could significantly affect internal controls,
subsequent to the date the Chief Executive Officer and Chief Financial Officer
completed their evaluation.

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PART II OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

Reference is made to the discussion under the caption Commitments and
Contingencies in Note D to Notes to Unaudited Condensed Financial Statements
in this quarterly report on Form 10-Q.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

On July 12, 2002, the Company held its annual meeting of stockholders. For
more information on the following proposals, refer to the Companys proxy
statement dated June 18, 2002, the relevant portions of which are incorporated
herein by reference.



|1. |  | The stockholders elected each of the five nominees to the Companys Board
of Directors who will serve until the 2003 annual meeting of stockholders
or until their successors are elected and qualified:
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     |  |     |            |         |  |  |         | 
|-------------------- |  | --- | ---------- | ------- |  |  | ------- | 
|Director             |  | For |            | Against
|                     |  |     |            |        
|Kenneth H. Traub     |  |     | 15,848,775 |         |  |  | 951,079 | 
|                    
|                    
|                    
|                    
|Salvatore F. DAmato |  |     | 15,908,775 |         |  |  | 891,079 | 
|                    
|                    
|                    
|                    
|Stephen A. Benton    |  |     | 16,068,255 |         |  |  | 731,599 | 
|                    
|                    
|                    
|                    
|Fred J. Levin        |  |     | 16,058,192 |         |  |  | 741,662 | 
|                    
|                    
|                    
|                    
|Douglas A. Crane     |  |     | 16,068,255 |         |  |  | 731,599 | 



|2. |  | The stockholders ratified the selection of Ernst & Young LLP as the
independent auditors of the Company:
|-- |  | --------------------------------------------------------------------------------------------------------

|               |  |  |            | 
|-------------- |  |  | ---------- | 
|For            |  |  | 16,720,176 | 
|              
|              
|              
|              
|Against        |  |  | 62,094     | 
|              
|              
|              
|              
|Abstain        |  |  | 17,584     | 
|              
|              
|              
|              
|Broker No Vote |  |  | 0          | 
|               |  |  |            | 
|Total          |  |  | 16,799,854 | 
|               |  |  |            | 




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



|(a) |  | Exhibits
|--- |  | --------



| | 99.1 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------
|
| | 99.2 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



|(b) |  | Reports on Form 8-K
|--- |  | -------------------

Current report on Form 8-K dated July 11, 2002.

14



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##### Table of Contents






SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

|                       |  |                                       |  |                                                                                    
|---------------------- |  | ------------------------------------- |  | -----------------------------------------------------------------------------------
|                       |  | AMERICAN BANK NOTE
HOLOGRAPHICS, INC.
|                      
|                      
|                      
|                      
|                       |  |                                       |  |                                                                                    
|                      
|                      
|                      
|                      
|                       |  | By:                                   |  | /s/ Kenneth H. Traub                                                               
|                       |  |                                       |  |                                                                                    
|                       |  |                                       |  | Kenneth H. Traub
President and Chief Executive Officer                             
|                      
|                      
|                      
|                      
|                       |  |                                       |  |                                                                                    
|                      
|                      
|                      
|                      
|                       |  | By:                                   |  | /s/ Alan Goldstein                                                                 
|                       |  |                                       |  |                                                                                    
|                       |  |                                       |  | Alan Goldstein
Vice President,
Chief Financial Officer and
Chief Accounting Officer
|                      
|                      
|                      
|                      
|Date: November 8, 2002 |  |                                       |  |                                                                                    

15



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##### Table of Contents



CERTIFICATIONS PURSUANT TO

SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Kenneth H. Traub, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of American Bank Note
Holographics, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 8, 2002

|                                                                             |  | 
|---------------------------------------------------------------------------- |  | 
|/s/ Kenneth H. Traub

Kenneth H. Traub
President and Chief Executive Officer |  | 

16



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##### Table of Contents



CERTIFICATION

I, Alan Goldstein, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of American Bank Note
Holographics, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 8, 2002

|                                                                                        |  | 
|--------------------------------------------------------------------------------------- |  | 
|/s/ Alan Goldstein

Alan Goldstein
Chief Financial Officer and Chief Accounting Officer |  | 

17